Anyone furnishing labor or materials on a construction project may be entitled to file a lien if they are not paid. Parties at “the top” of the contracting chain – such as the property owner, lender, or general contractor – are highly motivated to successfully complete the project without having any mechanics liens or bond claims filed against the property. However, sometimes simply making payment is not enough to protect the property from a lien or bond claim. This is where lien waivers come in.
As the name implies, lien waivers waive the lien rights of the signing party. Typically the party making payment will request that the party receiving payment sign a lien waiver as part of the payment transaction. This protects the paying party from making payment and also having a lien filed against the improved property. When exchanged properly, lien waivers benefit everyone: they protect the paying party from liens and bond claims, and they speed up the payment process for the hired party.
What Is an Unconditional Lien Waiver?
An unconditional lien waiver is a type of lien waiver that goes into effect as soon as it is signed. It is fully enforceable and completely effective upon execution. For this reason, an unconditional lien waiver can be dangerous for the signing party.
An unconditional lien waiver is different from a conditional lien waiver. Conditional waivers are conditioned upon the occurrence of something else, such as receipt of actual payment. For more on conditional lien waivers, click here.
When to Use an Unconditional Lien Waiver
There are two types of unconditional lien waiver. Deciding which type to use for a specific situation depends on whether or not further payments are expected for work on a project. For both types of unconditional lien waiver, lien rights are waived as soon as the document is signed. So if there is any reason the payment might fail (i.e. a check that hasn’t cleared, etc.), it’s a good idea not to sign any unconditional lien waiver.
Unconditional Lien Waiver for Partial Payment
Signing an unconditional lien waiver for partial payment immediately waives the right to file a lien for the specific payment noted in the waiver document when more payments for a project are expected to come in the future. An unconditional waiver for partial payment should only be used when partial or progress payment has actually been made and received. The waiver applies to a specific payment that has been made, i.e. payment for the first 2 weeks on a project that is expected to last a month, or for a specific delivery of materials when more materials are to be delivered later on.
Unconditional Lien Waiver for Final Payment
An unconditional lien waiver for final payment works the same way, except it is used when final payment for a project has been received. If more payments are expected, it is better to use an unconditional lien waiver for partial payment. After exchange of an unconditional lien waiver for final payment, no further payments are expected for the project, and the actual receipt of all payments should have occurred.
When NOT to Use an Unconditional Lien Waiver
This article outlines scenarios in which an unconditional lien waiver should be used, but since the consequences for signing away lien rights before payment has been received can be very serious, I am also going to describe situations where using an unconditional lien waiver is not a good idea. Keep in mind that these are general suggestions; if you have questions about a specific scenario, you should consult an attorney.
When the Money Isn’t in the Bank
Maybe you’ve received a check, but it’s best to wait until payment actually clears before signing an unconditional lien waiver. If a contractor signs the waiver the the check bounces, the contractor has no money and not lien rights. If payment has not actually been received, wait to sign until the check has cleared or provide a conditional lien waiver instead.
When the Amount Stated in the Waiver is Not What Has Been Received
In the case of unconditional lien waivers, it is especially important to exercise caution and review the contents of the waiver. The amounts stated in the document are more important than the amounts actually received. What is said to be paid matters more than what has actually been paid, so signing an unconditional lien waiver that states “$1000 has been paid” when a contractor has only received $500 leaves him with no recourse for attaining the rest of the money owed.
When Dates Don’t Match
A typical lien waiver waives lien rights for work performed to date. Signing parties should be careful that the dates described in the waiver match the dates for which payment has been received. For example, a payment request might seek payment for work performed through March 30th, but if the unconditional lien waiver states April 30th, the signor cannot file a lien for any work performed in the month of April.
Exchanging Lien Waivers
Typically, the party making payment will send an unsigned lien waiver to the hired party or will request that the hired party create, sign, and submit a lien waiver. zlien has created a free tool that anyone – suppliers, contractors, property owners, lenders, etc. – can use to create, sign, and exchange lien waivers electronically. Visit waiverexchange.com to try it for yourself. All waivers are safe and standardized, and follow statutory requirements when applicable.